The VA’s Manila Outpatient Clinic in the Philippines. (Department of Veterans Affairs)

A Department of Veterans Affairs hospital in the Philippines wasted money and violated agency policy for two decades by dispensing medications not approved by the U.S. Food and Drug Administration, according to federal investigators.

The U.S. Office of Special Counsel, which examines whistleblower complaints and protects federal employees from retaliation, revealed the findings in a letter to President Obama this month.

Investigations by the OSC and VA confirmed allegations that the clinic, which is the only VA medical center operating outside the United States, used Philippine drug suppliers once it could no longer obtain FDA-approved medications from its previous source, a U.S. military base.

The workaround started after the Clark Air Force Base closed in 1991, cutting off the hospital’s normal source for controlled substances. The clinic’s chief logistics and facilities manager, Robert Crawford, first notified the OSC about the matter after he was hired in April 2011.

“It is troubling that the VA was unable to resolve the issues associated with procuring FDA-approved controlled substances for the [Philippines clinic] for two decades,” U.S. special Counsel Carolyn N. Lerner said in the letter.

The VA determined that the medical center could have saved more than $655,000 in 2012 alone by using the department’s contracted U.S. supplier, McKesson Corp.

McKesson could not supply the clinic because the hospital was not registered with the Drug Enforcement Agency, according to investigators. Crawford began applying for the clinic’s DEA license after he was hired in 2011, the letter said.

The medical center has since completed all steps required to purchase drugs from McKesson, and the clinic received its first shipment from the supplier in May 2013, according to the OSC.

The hospital now receives most of its drugs from the U.S. supplier, except when there are special circumstances such as vaccines not used or available in the United States and when emergency medications are required, the OSC said.

Investigators called on the VA to develop a policy that would explain the circumstances and processes for using non-FDA-approved drugs in foreign countries, which the OSC said “may be necessary in emergency situations.” The VA has complied with that recommendation, according to the OSC.

The VA concluded in a report to the OSC that the hospital’ use of non-approved drugs did not pose a substantial danger to public health or safety, but Lerner said she was “unable to determine” whether that was true.

“While no evidence of a danger to veterans’ health or safety was found, the finding of no reported adverse events for any medications at the clinic raised questions regarding the clinic’s reporting practices and the validity of the data,” Lerner said in the letter.

The VA also concluded that no waste had occurred because of the clinic’s use of non-approved drugs, saying the hospital would have been unable to provide adequate care to veterans without them.

Lerner disagreed with that assessment. “Given the length of time to resolve this problem, and the significant costs incurred by failing to do so sooner, I have determined that the VA’s findings … are not reasonable,” she said.

Lerner this week issued a letter to Obama criticizing the VA for frequent use of a “harmless error” defense to deny that serious problems with its medical care could affect patients, as well as for retaliation against whistleblowers who tried to expose the problems.

Acting VA Secretary Sloan Gibson, who took over as head of the agency last month after the resignation of former VA chief Eric Shinseki, said he directed a comprehensive review of the Office of Medical Inspector’s operations to be completed in two weeks. He also reiterated recent remarks that he would not tolerate reprisals against whistleblowers.

The VA is still responding to recent findings that VA hospitals nationwide have falsified their scheduling records to hide treatment delays. Shinseki said in a speech shortly before his resignation that he was at a loss to explain “the lack of integrity among some of the leaders of our healthcare facilities.”

House Veterans Affairs Committee Chairman Jeff Miller (R-Fla.) said the VA’s conclusions about no harm from the use of non-approved drugs represents another attempt by high-level VA officials to downplay misconduct and mismanagement.

“Many VA leaders have proven time and again that they would rather sweep problems under the rug than solve them and are simply unwilling to take meaningful steps to hold VA employees and managers accountable for mismanagement,” Miller said.

The lawmaker has called on Obama to outline steps for responding to the OSC’s recent reports on the Philippines clinic, the “harmless error” defense and whistleblower retaliation.

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